In re Katrina Canal Breaches Litig..

• Decision Date: 10 May 2011
• Docket Number: No. 2010–CQ–1823.,2010–CQ–1823.
• Citation: 63 So.3d 955
• Parties: In re KATRINA CANAL BREACHES LITIGATION.
• Court: Louisiana Supreme Court

63 So.3d 955

In re KATRINA CANAL BREACHES LITIGATION.

No. 2010–CQ–1823.

Supreme Court of Louisiana.

May 10, 2011.

James D. Caldwell, Attorney General, Sallie Jones Sanders, James Trey Phillips, Stacie Lambert deBlieux, Stuart Kyle Duncan, for Plaintiffs.Adams & Reese, LLP, Deborah Bila Rouen, Christopher Albert D'Amour, Andrea Leigh Fannin, New Orleans, LA, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Matthew Aaron Woolf, New Orleans, LA, Barrasso, Usdin, Kupperman, Freeman & Sarver, LLC, Henry Minor Pipes, III, Stephen Lawrence Miles, Steven William Usdin, Judy Y. Barrasso, New Orleans, LA, Bernard, Cassisa, Elliott & Davis, Howard Bruce Kaplan, Metairie, LA, Christovich & Kearney, John Tilghman Culotta, Metairie, LA, Matthew Joseph Lindsay, Crull, Castaing & Lilly, Edward John Lilly, New Orleans, LA, DeRouen Law Firm, Patrick Dominic DeRouen, New Orleans, LA, Degan, Blanchard & Nash, APLC, Sidney Wallis Degan, III, Julia A. Dietz, New Orleans, LA, Duplass, Zwain, Bourgeois, Pfister & Weinstock, C. Michael Pfister, Jr., Lawrence J. Duplass, Metairie, LA, Kelly Cambre Bogart, Galloway, Johnson, Tompkins, Burr & Smith, APLC, Richard Edward King, New Orleans, LA, Gieger, Laborde & Laperouse, LLC, Robert Irwin Siegel, New Orleans, Hailey, McNamara, Hall, Larmann & Papale, LLP, William Glenn Burns, Lauren Elizabeth Brisbi, Sean Patrick Mount, Dominic J. Ovella, John Elliott Unsworth, Jr., New Orleans, LA, Huval, Veazey, Felder, Aertker & Renegar, LLC, Thomas Hebert Huval, Covington, LA, Johnson, Johnson, Barrios & Yacoubian, Neal John Favret, Alan John Yacoubian, Genevieve Kathleen Jacques, Jones Fussell, LLP, John R. Walker, Keogh, Cox & Wilson, LTD., John Powers Wolff, III, Krebs, Farley & Pelleteri, PLLC, Amy S. Malish, Maura Zivalich Pelleteri, Kristen Hipke Schorp, New Orleans, LA, Larzelere Picou Wells Simpson Lonero, LLC, Jay Michael Lonero, Christopher Raymond Pennison, Angie L. Arceneaux, Metairie, LA, Lobman, Carnahan, Batt, Angelle & Nader, Daniel Michael Redmann, New Orleans, LA, Lugenbuhl, Wheaton, Peck, Rankin & Hubbard, Ralph Shelton Hubbard, III, Seth Andrew Schmeeckle, Anne Elizabeth Briard, Baton Rouge, LA, McGlinchey Stafford, PLLC, Gerard Evans Wimberly, Jr., Baton Rouge, LA, Phelps Dunbar, LLP, Nora Bolling Bilbro, Jacqueline M. Brettner, Neil Charles Abramson, Marshall M. Redmon, Harry Allan Rosenberg, H. Alston Johnson, III, New Orleans, LA, Plauche Maselli Parkerson, LLP, Andrew L. Plauché, Jr., James K. Ordeneaux, New Orleans, LA, Porteous, Hainkel & Johnson, LLP, Charles Louis Chassaignac, IV, Baton Rouge, LA, Simon, Peragine, Smith & Redfearn, LLP, Milton Davis Ready, Thomas Robert Blum, New Orleans, LA, Stone Pigman Walther Whitmann, L.L.C., Mary L. Dumestre, Stephen G. Bullock, Wayne Joseph Lee, Lauren Godshall, New Orleans, LA, Talley, Anthony, Hughes & Knight, LLC, Rachel Patton Catalanotto, New Orleans, LA, The Law Offices of Gordon P. Serou, Jr., L.L.C., Gordon Paul Serou, Jr., Walter D. Wilson, for Defendants.JOHNSON, Justice.

[2010-1823 (La. 1] We accepted the certified question presented to this Court by the United States Fifth Circuit Court of Appeals in In Re: Katrina Canal Breaches Litigation, 613 F.3d 504 (5th Cir.2010).¹ The question presented is “Does an anti-assignment clause in a homeowner's insurance policy, which by its plain terms purports to bar any assignment of the policy or an interest therein without the insurer's consent, bar an insured's post-loss assignment of the insured's claims under the policy when such an assignment transfers contractual obligations, not just the right to money due?”

For the reasons set forth below, we answer the question as follows: ² There is no public policy in Louisiana which precludes an anti-assignment clause from applying to post-loss assignments. However, the language of the anti-assignment clause must clearly and unambiguously express that it applies to post-loss assignments, and thus it must be evaluated on a policy by policy basis.

[2010-1823 (La. 2] FACTS AND PROCEDURAL HISTORY³

To provide relief in the aftermath of Hurricanes Katrina and Rita, Congress appropriated federal funds, administered by the Department of Housing and Urban Development (“HUD”), to affected states. Louisiana distributed some of those funds via the “Road Home” program, which provided grants of up to $150,000 to Louisiana homeowners to repair uninsured or under-insured property damage. Purporting to fulfill an obligation under federal law to “prevent recipients from receiving any duplication of benefits,” the State required more than 150,000 Road Home grant recipients to execute a “Limited Subrogation/Assignment Agreement.” ⁴ It stated, in pertinent part:

I/we hereby assign to the State of Louisiana ... to the extent of the grant proceeds awarded or to be awarded to me under the [Road Home] Program, all of my/our claims and future rights to reimbursement and all payments hereafter received or to be received by me/us: (a) under any policy of casualty or property damage insurance or flood insurance on the residence, excluding contents (“Residence”) described in my/application for Homeowner's Assistance under the Program (“Policies”): (b) from FEMA, Small Business Administration, and any other federal agency, arising out of physical damage to the Residence caused by Hurricane Katrina and/or Hurricane Rita.

According to the State, the Road Home program created perverse incentives for insurance companies and insured homeowners: some insurers inadequately adjusted and paid grant-eligible homeowners' claims, and some grant-eligible homeowners had little motivation to file claims or challenge low insurance [2010-1823 (La. 3] settlements. Consequently, Road Home applications and grant amounts drastically increased, creating a one billion dollar projected shortfall in the program.

To remedy this situation, and pursuant to the assignment agreements, the State filed suit against more than two hundred insurance companies-allegedly all of the insurers who wrote property insurance in Louisiana at the time of the Hurricanes-in state court in Orleans Parish. The State sought to recover the funds expended and anticipated to be expended under the Road Home program and a declaration of the insurers' duties under the “all risk” policies they had issued to Road Home applicants.

The Defendants successfully removed the case to federal district court under the Class Action Fairness Act. According to the Defendants, the insurance industry has paid more than forty billion dollars to homeowners as a result of losses from Hurricanes Katrina and Rita. The insurers argue that the State's suit is an attempt to obtain yet more money from the insurers, even in situations where the homeowner was satisfied with the amount paid, had already filed a lawsuit against the insurer, or had reached a settlement agreement. Moreover, the insurers contend the State brought suit without investigating whether the Defendants had actually failed to make sufficient payment on individual homeowners' claims.

The Defendants subsequently filed a Federal Rule 12(b)(6) motion to dismiss in the federal district court, arguing in part that the State's claims failed as a matter of law because anti-assignment clauses in the homeowners' policies invalidated the purported assignments to the State.

Making an Erie⁵ guess, the federal district court denied the motion to dismiss, holding that the contractual anti-assignment provisions did not bar post-loss assignments under Louisiana law. The federal district court also denied the [2010-1823 (La. 4] Defendants' motion for reconsideration, but certified that order for interlocutory appeal pursuant to 28 U.S.C. § 1292(b). An appeal to the United States Fifth Circuit Court of Appeals followed. Because “interpretation of the policy provisions at issue is a matter of Louisiana law that will determine the outcome of this case and because there are no clear controlling precedents in the decisions of the Louisiana Supreme Court,” the Fifth Circuit invoked the certification privilege.

DISCUSSION

Parties' Contentions

The insurers contend the post-loss assignments to the State are invalid as a matter of law. They argue the anti-assignment clauses in the policies are enforceable based on Louisiana Civil Code article 2653 ⁶, which provides that a right cannot be assigned when the contract from which that right arises prohibits assignment of the right. The insurers note the anti-assignment clauses in the insurance contracts are broadly worded and contain no exception for post-loss assignments.

Additionally, the insurers argue this Court should not create a judicial exception to Article 2653 as a matter of public policy. The legislature, not the courts, creates public policy and thus only the legislature can create an exception to La. C.C. art. 2653. Moreover, the insurance industry is highly regulated, and the Commissioner has never imposed any restrictions on anti-assignment clauses or required that they contain exceptions for post-loss assignments.

Furthermore, even if this Court were to consider public policy, it favors enforcement of the anti-assignment clauses under the circumstances of this case. The [2010-1823 (La. 5] Road Home assignments are not merely assignments of perfected or liquidated claims for money due. There is a difference between a liquidated claim for policy proceeds, where an insurer simply has to pay an undisputed amount of money, and an unliquidated claim for additional damage to the property, which has not yet been proven. This distinction is critical because the insured must comply with various obligations under a property insurance policy in order to assert a claim, and the insured's duties cannot be transferred to the State. To allow the assignments in this case results in increased risk to the insurers because they would be compelled to litigate thousands of previously closed homeowners' insurance claims where the State...